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SEC Chairman Proposes Amendment to Federal Custody Rules to Cover “All Crypto Assets” – Regulation

US Securities and Exchange Commission (SEC) Chairman Gary Gensler has proposed changing federal custody rules to cover “all crypto assets.” The SEC chief said, “Although some crypto trading and lending platforms may claim to hold investors’ crypto, that does not mean they are qualified custodians.”

Gary Gensler suggests adding crypto to expanded custody rules

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler announced Wednesday that he has proposed changes to federal regulations “to broaden and strengthen the role of qualified custodians.”

All asset classes, including crypto, would be included under the expanded custody rules under his proposal, and companies offering crypto custody services to their customers would be required to register. Gensler emphasized:

Today’s proposal covering all asset classes would cover all crypto assets.

The SEC Chairman went on to highlight four key proposed changes to the existing regulations. First, the proposal will help ensure client assets are “properly segregated,” he said. Second, for the first time, advisors and qualified trustees must “enter into written agreements with each other that help ensure trustee protections,” Gensler explained, adding that they require trustees to undergo annual reviews by auditors and to provide accountable statements and draw up Request records available.

The proposal would also “make it clear that the safeguards of the custody rule apply to discretionary trading — if an adviser were attempting to buy or sell an investor’s assets on behalf of an investor,” Gensler described. In addition, it would “improve the requirements for foreign financial institutions that act either as qualified custodians or as sub-custodians of a qualified custodian,” he said.

“Although some crypto trading and lending platforms may claim to hold investors’ crypto, that does not mean they are qualified custodians,” the SEC Chairman pointed out, stating:

Based on how crypto platforms work in general, investment advisors cannot rely on them as qualified custodians.

Current regulations already cover “a significant amount of crypto assets,” Gensler pointed out, noting that most crypto assets “are likely to be funds or crypto asset securities that fall under the current rule.”

The SEC Chairman reiterated his concerns that crypto platforms are not properly segregating clients’ assets, saying:

Instead of properly separating investors’ cryptos, these platforms have mixed these assets with their own cryptos or the cryptos of other investors.

“When these platforms go bankrupt — which we’ve seen a lot lately — investors’ assets have often become the property of the failed company, leaving investors in bankruptcy court lines,” Gensler warned. Over the past year, a number of crypto firms have filed for bankruptcy, including FTX, Celsius Network, Voyager Digital, Three Arrows Capital (3AC) and Blockfi.

The SEC has recently been active in the crypto space. Last week, securities regulators indicted cryptocurrency exchange Kraken over its staking program. The Commission also received a communication from Wells regarding Paxos stablecoin Binance USD (BUSD) claiming that the crypto is a security and that Paxos should have registered the offering under federal securities laws. Binance CEO Changpeng Zhao (CZ) then warned of a “profound impact” on the crypto industry if BUSD is excluded as a security.

Do you think SEC Chairman Gary Gensler’s proposal will help or hurt the crypto industry? Let us know in the comment section below.

SEC Chairman Proposes Amendment to Federal Custody Rules to Cover “All Crypto Assets” – Regulation, Crypto Trading News

Kevin Helms

As a student of Austrian economics, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects and the interface between economics and cryptography.

photo credit: Shutterstock, Pixabay, WikiCommons

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Source: Crypto News Deutsch

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